diff --git a/pip/req.py b/pip/req.py
index 5742e62ce07..93af61c9d33 100644
--- a/pip/req.py
+++ b/pip/req.py
@@ -37,7 +37,8 @@
 class InstallRequirement(object):
 
     def __init__(self, req, comes_from, source_dir=None, editable=False,
-                 url=None, as_egg=False, update=True, prereleases=None):
+                 url=None, as_egg=False, update=True, prereleases=None,
+                 from_bundle=False):
         self.extras = ()
         if isinstance(req, string_types):
             req = pkg_resources.Requirement.parse(req)
@@ -65,6 +66,7 @@ def __init__(self, req, comes_from, source_dir=None, editable=False,
         self.uninstalled = None
         self.use_user_site = False
         self.target_dir = None
+        self.from_bundle = from_bundle
 
         # True if pre-releases are acceptable
         if prereleases:
@@ -776,12 +778,10 @@ def bundle_requirements(self):
                 url = None
             yield InstallRequirement(
                 package, self, editable=True, url=url,
-                update=False, source_dir=dest_dir)
+                update=False, source_dir=dest_dir, from_bundle=True)
         for dest_dir in self._bundle_build_dirs:
             package = os.path.basename(dest_dir)
-            yield InstallRequirement(
-                package, self,
-                source_dir=dest_dir)
+            yield InstallRequirement(package, self,source_dir=dest_dir, from_bundle=True)
 
     def move_bundle_files(self, dest_build_dir, dest_src_dir):
         base = self._temp_build_dir
@@ -1059,9 +1059,14 @@ def prepare_files(self, finder, force_root_egg_info=False, bundle=False):
                     unpack = True
                     url = None
 
-                    # If a checkout exists, it's unwise to keep going.
-                    # Version inconsistencies are logged later, but do not fail the installation.
-                    if os.path.exists(os.path.join(location, 'setup.py')):
+                    # In the case where the req comes from a bundle, we should
+                    # assume a build dir exists and move on
+                    if req_to_install.from_bundle:
+                        pass
+                    # If a checkout exists, it's unwise to keep going.  version
+                    # inconsistencies are logged later, but do not fail the
+                    # installation.
+                    elif os.path.exists(os.path.join(location, 'setup.py')):
                         msg = textwrap.dedent("""
                           pip can't proceed with requirement '%s' due to a pre-existing build directory.
                            location: %s
diff --git a/tests/data/packages/simplebundle.pybundle b/tests/data/packages/simplebundle.pybundle
new file mode 100644
index 00000000000..e8bb889971e
Binary files /dev/null and b/tests/data/packages/simplebundle.pybundle differ
diff --git a/tests/functional/test_install_bundle.py b/tests/functional/test_install_bundle.py
new file mode 100644
index 00000000000..ea45f30efb7
--- /dev/null
+++ b/tests/functional/test_install_bundle.py
@@ -0,0 +1,11 @@
+import os
+from tests.lib import reset_env, pip_install_local, packages
+
+def test_install_pybundle():
+    """
+    Test intalling a *.pybundle file
+    """
+    env = reset_env()
+    result = pip_install_local(os.path.join(packages, 'simplebundle.pybundle'), expect_temp=True)
+    result.assert_installed('simple', editable=False)
+    result.assert_installed('simple2', editable=False)
diff --git a/tests/lib/__init__.py b/tests/lib/__init__.py
index aebbd5faf68..b877259afaf 100644
--- a/tests/lib/__init__.py
+++ b/tests/lib/__init__.py
@@ -451,7 +451,7 @@ def run_pip(*args, **kw):
 
 def pip_install_local(*args, **kw):
     """Run 'pip install' using --find-links against our local test packages"""
-    run_pip('install', '--no-index', '--find-links=%s' % find_links, *args, **kw)
+    return run_pip('install', '--no-index', '--find-links=%s' % find_links, *args, **kw)
 
 def write_file(filename, text, dest=None):
     """Write a file in the dest (default=env.scratch_path)